BoE Keeps Policy Steady And Notes Negative Rates Remain Part Of Toolkit

Notes/Observations

• BOE keep policy steady; more optimistic on GDP and inflation outlook for horizon period; negative rates remain part of toolkit
• German Jun Factory Order surge keeping hope alive for a “V”-shaped recovery
• RBI keeps policy steady to save ammo down the road

Asia:

• China PBOC adviser Ma Jun reiterates stance of no need to step up monetary easing

Coronavirus:

• Total global cases 18,752,917 (+1.5% d/d); total deaths: 706.8K (+1.0% d/d)
• Australia PM Morrison stated that Victoria’s lockdown to wipe A$10-12B, or 2.5%, from Australian Q3 GDP

Americas:

• US Senate Leader McConnell: The 2 sides remained a long way apart; hoping there’ll be a deal by the end of the week
• House Speaker Pelosi stated that both her and Senate Democratic Leader Schumer were determined to get an agreement on the C-19 relief bill
• Fed’s Mester (hawk, voter): US is going to need much more fiscal support . Expected unemployment rate to remain elevated at around 9% by end of 2020. Saw 2020 GDP -6%; forecast uncertainty was very high
• Sec of State Pompeo urged American companies to bar Chinese applications from their app stores

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.37% at 363.80, FTSE -1.32% at 6,024.14, DAX -0.03% at 12,656.95, CAC-40 -0.55% at 4,906.31, IBEX-35 -0.65% 6,994.00, FTSE MIB -0.56% 19,630.50, SMI -0.21% at 10,077.00, S&P 500 Futures +0.09%]
• Market Focal Points/Key Themes: European indices open modestly lower and remained in the red as the session progressed; focus on latest avalanch of earnings reports; better performing sectors include consumer staples and health care; underperforming sectors lead by materials; Atlantia regected government plan for Autostrade stake; earnings expected in the upcoming US session include Dropbox, Bristol Myers Squibb, Motorola and Uber

Equities

• Consumer discretionary: Adidas [ADS.DE] +3% (earnings), Lufthansa [LHA.DE] +3% (earnings), Henkel [HEN3.DE] -3% (earnings)
• Financials: Credit Agricole [ACA.FR] +1% (earnings), ING [INGA.NL] +3% (earnings), Unicredit [UCG.IT] -2% (earnings)
• Healthcare: Novo Nordisk A/S [NOVOB.DK] +1% (earnings)
• Industrials: Siemens [SIE.DE] +3% (earnings), Mondi plc [MNDI.UK] +4% (earnings)

Speakers

• BOE Policy Statement noted that both Interest rate and Asset Purchase target was unanimous (9-0) to keep rates at 0.10% and maintain Asset Purchases at £745B. Recovery to depend on evolution of pandemic. Reiterated to monitor situation closely and stood ready to adjust policy accordingly. MPC Staff Projections assumed that direct impact of Covid-19 on economy to dissipate gradually over the forecast period. Reiterated stance of not tightening policy until clear progress was made in eliminating spare capacity. Expected asset purchases to be completed by end-2020
• BOE Quarterly Monetary Report (MPR) cut 2020 CPI from 0.6% to 0.25% while raising 2021 CPI from 0.5% to 1.75%. It maintained 2022 CPI at 2.0%. Raised 2020 GDP from -14.0% to -9.5% while cutting 2021 GDP growth forecast from 15.0% to 9.0% and raising 2022 GDP from 3.0% to 3.5%. MPC noted that risks to outlook for GDP were skewed to the downside
• BOE Gov Bailey post rate decision press conference: Negative rates not appropriate at this time but could be used in future. Negative interest rates were part of our toolbox. Domestic economy was improving but was uneven. Further stimulus to depend on downside risks coming to fruition
• Norway Central Bank (Norges) 2Q Bank Lending Survey saw higher mortgage demand in quarter and higher margins on mortgages
• Romania Central Bank official Popa: NBR to slightly lower its inflation forecast. Rate cuts should be more carefully weighed and could not afford zero real negative rates
• India Central Bank (RBI) Policy Statement noted that it would maintain accommodative stance for as long as necessary
• India Central Bank (RBI) Gov Das post rate decision comment noted that RBI did have space for further action but needed to use it judiciously going forward. Cumulative cuts were working their way through economy. Domestic economy had begun to recover but falling imports suggested weak domestic demand. Current fiscal year GDP to contract. Headline inflation to remain elevated in Q2; inflation pressures evident in sub-categories
• China Foreign Ministry spokesperson reiterated opposition to US-Taiwan interactions; to take strong countermeasures

Currencies/ Fixed Income

• USD began the session on softer footing as market confidence in the dollar’s role as a safe haven continued to be questioned. The recent trend in the greenback also magnified by loss of US rate advantage and concerns of its rising twin deficits. The dollar managed to revser its initial losses against the bulk of the major pairs by mid-session
• EUR/USD against tested the 1.19 level as German data continued to paint the hope of a “V” shape on the roadmap. Pair saw the gains evaporate largely on technical factors. The 1.20 level remains a target but facing some headwinds ahead of the US Friday jobs report
• GBP/USD was firmer in the aftermath of BOE rate decision. Updated staff projections from MPC highlighted that the economic recovery from coronavirus had been “earlier and more rapid” than projected back in May. BOE now saw 2020 GDP contracting by 9.5% compared to 14% contraction seen back in May

Economic Data

• (NL) Netherlands July CPI M/M: 1.1 v 0.3% prior; Y/Y: 1.7 v 1.6% prior
• (NL) Netherlands July CPI EU Harmonized M/M: 0.9% v 0.5% prior; Y/Y: 1.6 v 1.7% prior
• (UK) Bank of England Bank (BOE) left policy steady with Interest Rates unchanged at 0.10% and Total Asset Purchase Program maintained at £745B
• (DE) Germany Jun Factory Orders M/M: 27.9% v 10.1%e; Y/Y: -11.3% v -18.5%e
• (IN) India Central Bank (RBI) Interest Rate Decision: Expected to cut Repurchase Rate by 25bps to 3.75%; Expected to cut Reverse Repo Rate by 25bps to 3.10%; Expected to leave Cash Reserve Ratio (CRR) at 3.00%
• (CZ) Czech Jun National Trade Balance (CZK): 34.1B v 7.5Be
• (CZ) Czech Jun Industrial Output Y/Y: -11.9% v -11.4%e; Construction Output Y/Y: % v -7.6% prior
• (HU) Hungary Jun Industrial Production M/M: % v 10.0%e; Y/Y: % v -12.8%e
• (DE) Germany July Construction PMI: 49.7 v 41.3 prior
• (IT) Italy Jun Industrial Production M/M: 8.2% v 5.0%e; Y/Y: -13.7% v -16.0%e; Industrial Production NSA (unadj) Y/Y: -11.0% v -25.3% prior
• (TW) Taiwan July CPI Y/Y: -0.5% v -0.5%e; CPI Core Y/Y: 0.1% v 0.1%e; WPI Y/Y: -9.2% v -8.9%e
• UN July FAO World Food Price Index: 94.2 v 93.1 prior; Y/Y: +1.2% v +2.3% prior
• (SE) Sweden Jun Economic Activity Index M/M: 2.4%
• (UK) July Construction PMI: 57.0e v 55.3 prior

Fixed Income Issuance

• (ES) Spain Debt Agency (Tesoro) sold total €3.978B vs. €3.5-4.5B indicated range in 2023, 2027 and 2030 SPGB Bonds
• Sold €979M in 0.00% Apr 2023 SPGB; Avg Yield: -0.392% v -0.242% prior; Bid-to-cover: 4.05x v 2.15x prior
• Sold €1.979B in 0.8% July 2027 SPGB; Avg yield: -0.021% v +0.146% prior; Bid-to-cover: 1.22x v 1.58x prior
• Sold €1.02B in 1.25% Oct 2030 SPGB; Avg Yield: 0.263% v 0.451% prior; Bid-to-cover: 3.03x v 2.06x prior
• (ES) Spain Debt Agency (Tesoro) sold €598M vs. €250-750M indicated range in 1.00% Nov 2030 inflation linked bonds (SPGBi); Real Yield: -0.784% v -0.361% prior; Bid-to-cover: 1.74x v 1.44x prior
• (FR) France Debt Agency (AFT) sold total €B vs. €7.5-9.0B indicated rangein 2029, 2030, 2031 and 2050in Bonds
• Sold €1.740B in 5.5% Apr 2029 Oat; Avg Yield: -0.36% v -0.08% prior; Bid-to-cover: 1.93x v 1.99x prior (Dec 5th 2019)
• Sold €3.019B in 2.50% May 2030 Oat; Avg Yield: -0.27% v +0.02% prior; Bid-to-cover: 2.15x v 2.42x prior (Jun 4th 2020)
• Sold €2.515B in 1.50% May 2031 Oat; Avg Yield: -0.21% v +0.92% prior; Bid-to-cover: 1.79x v 1.38x prior (Sept 6th 2018)
• Sold €1.725B in 1.50% May 2050 Oat; Avg Yield: 0.41% v 0.87% prior; Bid-to-cover: 2.54x v 2.38x prior

Looking Ahead

• (EG) Egypt July Net Reserves: No est v $38.2B prior; Gross Official Reserves: No est v $B prior
• (CO) Colombia July Consumer Confidence Index: -25.0e v -33.1 prior
• (RU) Russia July Light Vehicle Car Sales Y/Y: -9.1%e v -14.6% prior
• 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds
• 05:30 (PL) Poland switch auction
• 06:00 (IE) Ireland Jun Industrial Production M/M: No est v -9.8% prior; Y/Y: No est v -11.3% prior
• 06:45 (US) Daily Libor Fixing
• 07:00 (MX) Mexico May Gross Fixed Investment: -38.9%e v -36.9% prior
• 07:00 (MX) Mexico July Vehicle Production: No est v 239.0K prior; Vehicle Exports: No est v 196.2K prior
• 07:00 (ZA) South Africa Jun Electricity Production Y/Y: No est v -13.2% prior; Electricity Consumption Y/Y: No est v -13.6% prior
• 07:00 (BR) Brazil July FGV Inflation IGP-DI M/M: 2.2%e v 1.6% prior; Y/Y: 10.2%e v 7.8% prior
• 07:30 (US) July Challenger Job Cuts: No est v +170.2K prior; Y/Y: No est v 305.5% prior
• 07:45 (UK) BOE to buy £1.15B in APF Gilt purchase operation (3-7 years)
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:00 (BR) Brazil Jun National Unemployment Rate: 13.2%e v 12.9% prior
• 08:30 (CZ) Czech Central Bank (CNB) Interest Rate Decision: Expected to leave Repurchase Rate unchanged at 0.25%
• 08:30 (US) Initial Jobless Claims: 1.40Me v 1.434M prior; Continuing Claims: 16.90Me v 17.018M prior
• 08:30 (US) Weekly USDA Net Export Sales
• 08:45 (UK) BOE to buy £1.15B in APF Gilt purchase operation (7-20 years)
• 09:00 (RU) Russia Gold and Forex Reserve w/e July 31st: No est v $582.7B prior
• 09:00 (CL) Chile Jun Nominal Wage M/M: No est v -0.1% prior; Y/Y: No est v 2.6% prior
• 09:45 (UK) BOE to buy £1.15B in APF Gilt purchase operation (20+ years)
• 10:00 (US) Fed’s Kaplan
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 11:30 (US) Treasury to sell 4-week and 8-week bills
• 12:00 (CA) Canada to sell 10 Year Bonds
• 12:00 (RU) Russia July CPI M/M: 0.4%e v 0.2% prior; Y/Y: 3.4%e v 3.2% prior
• 12:00 (RU) Russia July CPI Core M/M: 0.3%e v 0.3% prior; Y/Y: 3.0%e v 2.9% prior
• 12:30 (US) Fed’s Singh
• 18:30 (AU) Australia July Performance of Services Index: No est v 31.5 prior
• 19:30 (JP) Japan Jun Household Spending Y/Y: -7.8%e v -16.2% prior
• 19:30 (JP) Japan Jun Labor Cash Earnings Y/Y: -3.0%e v -2.1% prior; Real Cash Earnings Y/Y: -2.0%e v -2.1% prior
• 21:30 (AU) RBA Statement on Monetary Policy (SOMP)
• 21:30 (AU) Australia Jun Home Loans Value M/M: No est v -11.6% prior
• 23:00 (ID) Indonesia July Foreign Reserves: No est v $131.7B prior
• 23:30 (TH) Thailand July Consumer Confidence: No est v 49.2 prior; Economic Confidence: No est v 41.4 prior
• 23:00 (CN) China to sell 30-year Upsized Government Bond
• 23:00 (CN) China to sell 3-month Bills
• 23:30 (JP) Japan to sell 3-Month Bills